National Insurance payable?

Snozzle

I've tried searching but been unable to find a clear answer.

I am a sole director of a company and pay myself just below the threshold where the company would needi to start paying Employer National Insurance on my behalf.  This company has been running for about 10 years.  Any surplus income generated by this company is paid by them directly into my SIPP.

This past year, I have set up another company with a colleague - 2 directors.  To date we have not taken a salary or claimed our expenses from the company.  As we are approaching this companies year end (end of March), we are now bringing in more money monthly than paying out but looking to clarify, if we start paying out salaries to us both, would this 2nd company need to calculate / pay employer national insurance on my behalf even though I would only be claiming a small salary - less than £6,000 per year - but added to my first salary would be above the threshold for employers to startt paying tax. 

Thanks for any thoughts on this.

 

DullGreyGuy

You're aware of the Employment Allowance?
https://www.gov.uk/claim-employment-allowance

Nomunnofun1

Snozzle said:

I've tried searching but been unable to find a clear answer.

I am a sole director of a company and pay myself just below the threshold where the company would needi to start paying Employer National Insurance on my behalf.  This company has been running for about 10 years.  Any surplus income generated by this company is paid by them directly into my SIPP.

This past year, I have set up another company with a colleague - 2 directors.  To date we have not taken a salary or claimed our expenses from the company.  As we are approaching this companies year end (end of March), we are now bringing in more money monthly than paying out but looking to clarify, if we start paying out salaries to us both, would this 2nd company need to calculate / pay employer national insurance on my behalf even though I would only be claiming a small salary - less than £6,000 per year - but added to my first salary would be above the threshold for employers to startt paying tax. 

Thanks for any thoughts on this.

 

No you wouldn’t - unless the two employments are linked. Look under:

‘People with more than one source of earnings’

https://ifs.org.uk/taxlab/taxlab-taxes-explained/national-insurance-contributions-explained

MattMattMattUK

Snozzle said:

I've tried searching but been unable to find a clear answer.

I am a sole director of a company and pay myself just below the threshold where the company would needi to start paying Employer National Insurance on my behalf.  This company has been running for about 10 years.  Any surplus income generated by this company is paid by them directly into my SIPP.

This past year, I have set up another company with a colleague - 2 directors.  To date we have not taken a salary or claimed our expenses from the company.  As we are approaching this companies year end (end of March), we are now bringing in more money monthly than paying out but looking to clarify, if we start paying out salaries to us both, would this 2nd company need to calculate / pay employer national insurance on my behalf even though I would only be claiming a small salary - less than £6,000 per year - but added to my first salary would be above the threshold for employers to startt paying tax. 

Thanks for any thoughts on this.

You pay NI on a per PAYE job basis based on your weekly reported earnings. If you earn enough to meet the criteria in any one week then your employer must pay NI on your behalf for that period. 

You should however be aiming to pay yourself above the NI threshold and then utilising the employment allowance which means that the company does not have to pay the first £5,000 of NI (rising to £10k next financial year).
https://www.gov.uk/claim-employment-allowance

Do you have an accountant?

DullGreyGuy

MattMattMattUK said:

Snozzle said:

I've tried searching but been unable to find a clear answer.

I am a sole director of a company and pay myself just below the threshold where the company would needi to start paying Employer National Insurance on my behalf.  This company has been running for about 10 years.  Any surplus income generated by this company is paid by them directly into my SIPP.

This past year, I have set up another company with a colleague - 2 directors.  To date we have not taken a salary or claimed our expenses from the company.  As we are approaching this companies year end (end of March), we are now bringing in more money monthly than paying out but looking to clarify, if we start paying out salaries to us both, would this 2nd company need to calculate / pay employer national insurance on my behalf even though I would only be claiming a small salary - less than £6,000 per year - but added to my first salary would be above the threshold for employers to startt paying tax. 

Thanks for any thoughts on this.

You pay NI on a per PAYE job basis based on your weekly reported earnings. If you earn enough to meet the criteria in any one week then your employer must pay NI on your behalf for that period. 

You should however be aiming to pay yourself above the NI threshold and then utilising the employment allowance which means that the company does not have to pay the first £5,000 of NI (rising to £10k next financial year).
https://www.gov.uk/claim-employment-allowance

Do you have an accountant?

For the avoidance of doubt its only the Employers NI that the allowance applies to. Employee NI isnt considered

Snozzle

Re Employment Allowance - I cannot claim it for my 1st (main) company as I am a sole director so not eligible.  I use an accountant to produce the company accounts for this company.

This 2nd company is just completing its' first full year of trading, it has not generated enough income to pay the 2 directors more than a token salary.  Hopefully from next year it will be eligible to claim the emploment allowance - but definitely not this year.  

The only way the companies are linked is I am a director of both and both provide a similar service.  There are no financial links.  As accountants are so busy at the moment in the run up to the tax year end we thought we should wait till after 5th April to source an accountant for this company - business is in a different location to my current accountant.  

The only sticking point is working out if I gave myself a salary from the new company it would take my combined income over the £9,100 and as a director of both companies should I be aware of this and thus the businesses be required to pay employers NIC - in which case would is it the norm to be paid proportionately between them or I can choose which company pays.

I am hoping the companies are not considered linked and therefore by each company paying me less than £9,100 no employer NIC is due by either company. 

Thanks for all the input.

 

DullGreyGuy

Snozzle said:

The only way the companies are linked is I am a director of both and both provide a similar service.

You arent someone with significant control of both? ie a shareholder with 25%  or more shareholding?

SacredStephan

Snozzle said:

I am hoping the companies are not considered linked and therefore by each company paying me less than £9,100 no employer NIC is due by either company.  

Are you aware that the Secondary Threshold is currently set at £9,100 a year and will be reduced to £5,000 a year in April?

Grumpy_chap

Snozzle said:

my 1st (main) company as I am a sole director so not eligible.  I use an accountant to produce the company accounts for this company.

This 2nd company is just completing its' first full year of trading, it has not generated enough income to pay the 2 directors more than a token salary.  Hopefully from next year it will be eligible to claim the emploment allowance - but definitely not this year.  

The only way the companies are linked is I am a director of both and both provide a similar service.  There are no financial links.  As accountants are so busy at the moment in the run up to the tax year end we thought we should wait till after 5th April to source an accountant for this company - business is in a different location to my current accountant.  

 

Why does the Accountant for the 2nd business need to be in the same location as the 2nd business?
You may find it simpler and incur lower fees if you can use the one Accountant for both business plus your personal tax returns.  This will avoid needing to repeat the same information to the two different Accountants who will both charge for the time taken to consider that information.  Having two different Accountants may also mean that, through no fault of either Accountant, advice may be given that is not conscious of all the facts.

I think you can be fairly certain that most Accountants are less busy now than they were in January.

Bookworm105

Snozzle said:

The only way the companies are linked is I am a director of both and both provide a similar service.  There are no financial links.  As accountants are so busy at the moment in the run up to the tax year end we thought we should wait till after 5th April to source an accountant for this company - business is in a different location to my current accountant.  

The only sticking point is working out if I gave myself a salary from the new company it would take my combined income over the £9,100 and as a director of both companies should I be aware of this and thus the businesses be required to pay employers NIC - in which case would is it the norm to be paid proportionately between them or I can choose which company pays.

 

both companies are linked since (it appears) you are the person with significant control of both of them. It appears company 1 has one employee (you) and company 2 has two employees (both of whom are directors)

that said what each company pays you is a matter for each company. As a director you are not subject to minimum wage legislation but neither do you need to worry about earning more than 9,100 combined as you do not treat the pay as a consolidated total across both companies

The main impact of "connection" is it means only one of the companies can claim employment allowance (EA). Since your original company is a one man band then, as you know, it can't claim it anyway, so the fact any unused EA cannot be transferred from company 2 to company 1 is irrelevant.
NIM06590 - Employment Allowance: Connected persons – companies and Limited Liability Partnerships - HMRC internal manual - GOV.UK

Connected companies and Employment Allowance: further guidance for employers and their agents - GOV.UK

so provided BOTH company 2 directors earn above the secondary threshold (via a PAYE salary obviously) then company 2 can claim EA against the NI - ER it will incur. From April 25 that means employee earnings of at least £5,000 will trigger an EA claim of up to £10,500 per tax year (April - April)
Rates and thresholds for employers 2025 to 2026 - GOV.UK

As both employees of company 2 are directors then it would be the norm to process NI under the annualised earnings scheme available only to directors.
Therefore, in relation to 25-26 tax year, NI - EE will only be paid when earnings for year to date (YTD) exceed the primary threshold £12,570 and NI - ER will only be paid when earnings YTD exceed 5,000 but can be offset by up to 10,500 of EA

As neither company appears to be your primary source of personal income it would be inefficient to take a salary in excess of the primary threshold as the norm is to take a salary between lower earnings limit (to secure state pension credit) and PT. Then either to take excess profit as dividends, or let the company pay direct into a pension fund (subject of course to pension maximum caps which is an entirely different topic). Obviously by taking a low salary the corporation tax will be higher, so do some what if planning to decide which option meets your personal wealth acquisition needs.

Snozzle

Yes, I have significant control of both.  100% in my main company and 50% in the new company.  Yes re the £5,000 from April.  By then that will be our joint companies 2nd year running and will have a full year of income, allowing both of us to be paid over the minimum and claim the employment allowance all being well.  It is just this year I needed to clarify.  

From 2025 / 2026 the plan is for company 1 to reduce my salary to just under £5,000 but increase the pension contributions it makes to my pension avoiding paying any Employer NI and for the 2nd (joint company) to increase what it pays us (over £5,000 each) allowing us to claim the employment allowance.  I am hoping one offsets the other all being well.

I hope to limit the corporation tax due by getting both companies to contribute to my / our pensions.

Finally re the accountant situation.  The current accountant is due to retire soon so not interested really in new starts.  Hence why starting afresh.

Thanks for the thoughts / responses.  Has definitely got me thinking further ahead than just sorting this year out....